Sturgis Bancorp Reports Earnings for 2022

STURGIS, MI / ACCESSWIRE / January 23, 2023 / Sturgis Bancorp, Inc. (OTCQX:STBI) today announced net income of $6.6 million for 2022 and $1.9 million for the fourth quarter of 2022.

Sturgis Bancorp is the holding company for Sturgis Bank & Trust Company (Bank), and its subsidiaries Oakleaf Financial Services, Oak Mortgage, Ayres/Oak Insurance, and Oak Title Services. The Bank provides a full array of trust, commercial and consumer banking services from banking centers in Sturgis, Bangor, Bronson, Centreville, Climax, Colon, Marshall, Niles, Portage, South Haven, St. Joseph, Three Rivers and White Pigeon, MI. Oakleaf Financial Services offers a complete range of investment and financial-advisory services. Oak Mortgage offers residential mortgages in all markets of the Bank. Ayres/Oak Insurance offers various competitive commercial and consumer insurance products. Oak Title Services offers commercial and consumer title insurance.

Key Highlights:

• Earnings per share increased to $3.10 in 2022 from $2.98 in 2021. Earnings per share increased to $0.87 in the three months ended December 31, 2022 from $0.83 per share in the three months ended December 31, 2021. Net income increased 4.4% in 2022 to $6,620,000 from 2021 net income of $6,344,000, primarily due to higher net interest income in 2022.

• Credit quality remains strong, with 99.7% of loans performing according to loan agreements. Allowance for loan losses was 1.01% of loans on December 31, 2022, compared to 1.28% on December 31, 2021. Net charge-offs were ($110,000) in 2022, compared to $275,000 in 2021.

• The Bank maintained strong capital ratios, exceeding "well-capitalized" requirements, with Tier 1 leverage capital at 8.09%.

• Sales of $42.6 million residential mortgages generated $1.4 million of noninterest income in 2022, compared to $3.6 million on $128.3 million of sales in 2021. The slowdown in loan sales was due to higher market interest rates in 2022.

• Total assets increased 17.6% to $864.8 million.

• Net loans increased 29.0% to $699.4 million in 2022, including increases of $91.3 million in residential mortgages and $40.5 million in commercial real estate loans.

• Total non-brokered deposits increased 14.9% to $659.9 million on December 31, 2022, compared to $574.2 million on December 31, 2021.

Eric L. Eishen, President and CEO, stated, "Core business for the Bank has expanded significantly in 2022. Both loan and deposit growth have been at historic levels. This is primarily the result of our expansion into the Berrien County area and the success of our Western Market team, a team consisting of well-seasoned bankers and strong community boards. This has allowed the Bank to attract customers served by our staff for many years. We were glad to open full-service branches in Portage and Niles Michigan, relocate one of our South Haven branches to better facilities, and add loan production offices in Marshall and Battle Creek Michigan. While higher rates and low housing inventory have reduced mortgage banking revenue, the net interest income component of earnings continues to expand. Other components of fee revenue also continue to increase. The Bank has grown other sources of fee revenue over the past decade to help mitigate the volatility of the mortgage banking revenue. This fee revenue includes Investment Advisory Services, Title Insurance Services and a complete line of Commercial, Home and Auto Insurance. These allow the Bank to leverage existing customer relationships and more effectively serve our customer base. Credit quality has continued strong, despite national and regional stress from higher interest rates and inflation. The overall franchise value of the Bank is expanding."

Year ended December 31, 2022 vs. year ended December 31, 2021 - Net income for 2022 was $6.6 million, or $3.10 per share, compared to $6.3 million, or $2.98 per share, for 2021. The tax equivalent net interest margin increased to 3.30% in 2022 from 2.96% in 2021.

Net interest income increased to $24.4 million in 2022 from $19.6 million in 2021. The growth was primarily in loan interest income, which increased $4.8 million to $26.5 million. Total interest income increased $5.2 million to $28.9 million, while interest expense increased only $369,000 to $4.5 million.

The Company made no provision to the allowance for loan losses in 2022, compared to $1.1 million in the 2021. Net charge-offs were ($110,000) in 2022 and $275,000 in 2021. Credit quality remains strong, with 99.7% of loans performing in accordance with loan terms.

Noninterest income was $7.0 million in 2022, compared to $9.7 million in 2021. Most of the decrease in noninterest income was due to mortgage banking activities, which decreased $2.2 million to $1.4 million. Mortgage banking activities included residential loan sales of $42.6 million in 2022, compared to $128.3 million in 2021.

Noninterest expense was $23.5 million in 2022, compared to $20.5 million in 2021. Compensation and benefits, the largest component of noninterest expenses, increased $2.1 million, or 16.8%. The higher compensation expense includes additional staffing for the Bank's expansion into Berrien, Calhoun, and Kalamazoo Counties in southwest Michigan.

Three months ended December 31, 2022 vs. three months ended December 31, 2021 - Net income for the three months ended December 31, 2022 was $1,865,000, or $0.87 per share, compared to net income of $1,775,000, or $0.83 per share, for the same period in 2021. The tax equivalent net interest margin increased to 3.60% in the last three months of 2022 from 2.87% in the last three months of 2021.

Net interest income increased to $7.1 million in the last quarter of 2022 from $4.9 million in the last quarter of 2021. The growth was primarily in loan interest income, which increased $2.8 million to $8.2 million. Total interest income increased $2.9 million to $8.8 million, while interest expense increased only $695,000 to $1.7 million.

The Company made no provision to the allowance for loan losses in the final quarters of 2022 and 2021. Net charge-offs were ($10,000) in the last three months of 2022, compared to $66,000 in the last three months of 2021.

Noninterest income was $1.6 million in the final quarter of 2022, compared to $3.0 million in the same period 2021. Most of the decrease was due to mortgage banking activities, which decreased $1.2 million to $236,000. Mortgage banking activities included residential loan sales of $6.9 million in the fourth quarter of 2022, compared to $39.2 million in the fourth quarter 2021.

Noninterest expense was $6.4 million in the fourth quarter of 2022, compared to $5.7 million in the fourth quarter of 2021. Compensation and benefits, the largest component of noninterest expenses, increased $224,000, or 6.1%. The higher compensation expense includes additional staffing for the Bank's expansion in Berrien, Calhoun, and Kalamazoo Counties in southwest Michigan.

Balance Sheet - Total assets increased to $864.8 million on December 31, 2022, from $751.7 million on December 31, 2021, primarily the result of the growth in loans. Loans increased $157.2 million to $699.4 million on December 31, 2022, including increases of $91.3 million in residential mortgages and $40.5 million in commercial real estate loans.

Interest-bearing deposits increased to $556.5 million on December 31, 2022 from $438.7 million on December 31, 2021. Noninterest-bearing deposit accounts also increased $17.5 million to $163.0 million. The increase in deposit accounts is substantially due increased market penetration in southwest Michigan. Brokered deposits, a component of interest-bearing deposits, increased $49.6 million in 2022, while borrowed funds decreased $18.0 million.

Total equity was $52.5 million on December 31, 2022, compared to $52.4 million on December 31, 2021. Lower market values on available-for-sale securities, recorded in other comprehensive income, substantially offset equity growth from retained earnings. Total dividends paid in the 2022 were $1.5 million, or $0.68 per share. Book value per share was $24.53 ($20.42 tangible) as of December 31, 2022.

This release contains statements that constitute forward-looking statements. These statements appear in several places in this release and include statements regarding intent, belief, outlook, objectives, efforts, estimates or expectations of Bancorp, primarily with respect to future events and the future financial performance of the Bancorp. Any such forward-looking statements are not guarantees of future events or performance and involve risks and uncertainties, and actual results may differ materially from those in the forward-looking statement. Factors that could cause a difference between an ultimate actual outcome and a preceding forward-looking statement include, but are not limited to, changes in interest rates and interest rate relationships; demand for products and services; the degree of competition by traditional and non-traditional competitors; changes in banking laws and regulations; changes in tax laws; changes in prices, levies, and assessments; the impact of technological advances; government and regulatory policy changes; the outcome of any pending and future litigation and contingencies; trends in consumer behavior and ability to repay loans; and changes of the world, national and local economies. Bancorp undertakes no obligation to update, amend or clarify forward-looking statements as a result of new information, future events, or otherwise. The numbers presented herein are unaudited.

For additional information, visit our website at www.sturgis.bank.

Contacts:

Sturgis Bancorp -- Eric Eishen, President & CEO, or Brian P. Hoggatt, CFO -- P: 269 651-9345

CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share data)

		Dec.31,				Dec. 31,
		2022				2021
ASSETS
Cash and due from banks		$	14,008			$	15,793
Other short-term investments			977				23,731
Total cash and cash equivalents			14,985				39,524
Interest-earning deposits in banks			-				494
Securities - available for sale			63,159				83,134
Securities - held to maturity			22,070				24,347
Federal Home Loan Bank stock, at cost			8,381				7,951
Loans held for sale, at fair value			664				7,287
Loans, net of allowance of $7,141 and $7,031			699,443				542,196
Premises and equipment, net			17,431				13,231
Goodwill			5,834				5,834
Core deposit intangibles			-				49
Originated mortgage servicing rights			2,967				2,963
Real estate owned			380				-
Bank-owned life insurance			15,988				15,598
Accrued interest receivable			2,691				1,894
Other assets			10,782				7,233
Total assets		$	864,775			$	751,735
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing		$	162,978			$	145,503
Interest-bearing			556,538				438,690
Total deposits			719,516				584,193
Federal Home Loan Bank advances and other borrowings			71,000				89,000
Subordinated debentures - $15,000 face amount (less unamortized debt issuance costs of $266 at Sept. 30, 2022 and $327 at Dec. 31, 2021)			14,755				14,673
Accrued interest payable			760				425
Other liabilities			6,226				11,008
Total liabilities			812,257				699,299
Stockholders' equity
Common stock - $1 par value: authorized - 9,000,000 shares issued and outstanding 2,138,941 shares at Sept. 30, 2022 and 2,132,291 at Dec. 31, 2021			2,141				2,132
Additional paid-in capital			8,387				8,210
Retained earnings			48,991				43,823
Accumulated other comprehensive loss			(7,001	)			(1,729	)
Total stockholders' equity			52,518				52,436
Total liabilities and stockholders' equity		$	864,775			$	751,735

CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except share and per share data)

		Three Months
		Ended December 31,
		2022				2021
Interest income
Loans		$	8,180			$	5,358
Investment securities:
Taxable			398				359
Tax-exempt			124				125
Dividends			76				50
Total interest income			8,778				5,892
Interest expense
Deposits			1,073				581
Borrowed funds			623				420
Total interest expense			1,696				1,001
Net interest income			7,082				4,891
Provision (benefit) for loan losses			-				-
Net interest income after provision (benefit) for loan losses			7,082				4,891
Noninterest income:
Service charges and other fees			317				324
Interchange income			326				311
Investment brokerage commission income			435				461
Mortgage banking activities			236				1,465
Trust fee income			87				225
Earnings on cash value of bank-owned life insurance			100				91
Proportionate net income from unconsolidated subsidiaries			109				113
Other income			21				18
Total noninterest income			1,631				3,008
Noninterest expenses:
Compensation and benefits			3,884				3,660
Occupancy and equipment			893				680
Interchange expenses			152				131
Data processing			239				232
Professional services			99				86
Real estate owned expense			2				-
Advertising			123				145
FDIC premiums			107				78
Other expenses			937				708
Total noninterest expenses			6,436				5,720
Income before income tax expense			2,277				2,179
Income tax expense			412				404
Net income		$	1,865			$	1,775
Earnings per share		$	0.87			$	0.83
Dividends per share		$	0.17			$	0.16

CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except share and per share data)

		Year Ended
		December 31,
		2022				2021
Interest income
Loans		$	26,548			$	21,743
Investment securities:
Taxable			1,582				1,242
Tax-exempt			500				528
Dividends			281				171
Total interest income			28,911				23,684
Interest expense
Deposits			2,652				2,527
Borrowed funds			1,835				1,591
Total interest expense			4,487				4,118
Net interest income			24,424				19,566
Provision (benefit) for loan losses			-				1,074
Net interest income after provision (benefit) for loan losses			24,424				18,492
Noninterest income:
Service charges on deposits and other fees			1,253				1,216
Interchange income			1,286				1,183
Investment brokerage commission income			1,881				1,890
Mortgage banking activities			1,389				3,554
Trust fee income			411				505
Earnings on cash value of bank-owned life insurance			390				307
Gain on termination of interest rate swap			-				407
Proportionate net income from unconsolidated subsidiaries			352				494
Other income			87				141
Total noninterest income			7,049				9,697
Noninterest expenses:
Compensation and benefits			14,804				12,673
Occupancy and equipment			3,139				2,553
Interchange expenses			578				496
Data processing			490				901
Professional services			348				322
Advertising			525				593
FDIC premiums			364				272
Other expenses			3,231				2,704
Total noninterest expenses			23,479				20,514
Income before income tax expense			7,994				7,675
Income tax expense			1,374				1,331
Net income		$	6,620			$	6,344
Earnings per share		$	3.10			$	2.98
Dividends per share		$	0.68			$	0.64

OTHER FINANCIAL INFORMATION
(Amounts in thousands)

		Three Months
		Ended December 31,
		2022				2021
Sturgis Bank & Trust Company:
Average noninterest-bearing deposits		$	166,882			$	151,881
Average interest-bearing deposits			563,325				443,501
Average total assets			847,592				735,966
Sturgis Bancorp:
Average equity			51,676				51,571
Average total assets			847,780				736,145
Financial ratios for Sturgis Bancorp:
Return on average assets			0.86	%			0.96	%
Return on average equity			14.32	%			13.66	%
Net interest margin			3.58	%			2.84	%
Tax equivalent net interest margin			3.60	%			2.87	%
	Year Ended
		December 31,
		2022				2021
Sturgis Bank & Trust Company:
Average noninterest-bearing deposits		$	161,782			$	148,277
Average interest-bearing deposits			524,747				433,175
Average total assets			807,549				719,416
Sturgis Bancorp:
Average equity			51,615				49,725
Average total assets			807,758				719,583
Financial ratios for Sturgis Bancorp:
Return on average assets			0.82	%			0.88	%
Return on average equity			12.83	%			12.76	%
Net interest margin			3.27	%			2.93	%
Tax equivalent net interest margin			3.30	%			2.96	%

SOURCE: Sturgis Bancorp, Inc.

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